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VZCZCXR09954 

PP  RUEHCHI  RUEHDT  RUEHHM  RUEHJO  RUEHNH 

DE  RUEHPF  #1124/01  1661038 

ZNR  UUUUU  ZZH 

P 151038Z  JUN  06 

FM  AMEMBASSY  PHNOM  PENH 

TO  RUEHC/SECSTATE  WASHDC  PRIORITY  6864 

INFO  RUCNASE /ASEAN  MEMBER  COLLECTIVE  PRIORITY 

RUEHXI /LABOR  COLLECTIVE  PRIORITY 

RUEHGV/USMISSION  GENEVA  PRIORITY  1481 

RUEHC/DEPT  OF  LABOR  WASHDC  PRIORITY 

RUCPDOC/DEPT  OF  COMMERCE  WASHDC  PRIORITY 

UNCLAS  SECTION  01  OF  03  PHNOM  PENH  001124 

SIPDIS 

SENSITIVE 

SIPDIS 

STATE  FOR  EAP/MLS,  DRL/IL — MARK  MITTELHAUSER,  AND 

EAP/TPP/ABT  ED  HEARTNEY 

COMMERCE  FOR  ITA/OTEXA  MARIA  D ' ANDREA 

LABOR  FOR  ILAB — JIM  SHEA  AND  JONA  LAI 

GENEVA  FOR  RMA 

STATE  PLEASE  PASS  TO  USTR  FOR  BARBARA  WEISEL 

E.O.  12958:  N/A 

TAGS:  ELAB  ECON  KTEX  PGOV  CB 

SUBJECT:  CAMBODIAN  GARMENT  SECTOR  WORRIED  ABOUT  DRAMATIC 
INCREASE  IN  LABOR  UNREST 

REF:  A.  PHNOM  PENH  526 
I.B.  PHNOM  PENH  814 
I.C.  PHNOM  PENH  998 
I.D.  PHNOM  PENH  1035 

J.1 . (SBU)  SUMMARY.  Following  several  months  of  increased 
garment  sector  strikes,  the  number  of  working  days  lost  to 
strikes  reached  87,000  in  May — more  than  four  times  typical 
levels.  These  strikes  are  largely  the  result  of  two 
irresponsible  unions,  but  also  reflect  growing  union  rivalry, 
workers  more  assertively  pushing  for  wage  increases,  and  less 
effort  expended  in  negotiation.  In  addition,  a major 
pro-opposition  garment  sector  union  and  the  teachers ' union 
have  called  for  a general  strike  starting  July  3 if  demands 
about  wages,  workweek,  and  gasoline  prices  are  not  met. 
Garment  factory  managers  and  buyers  are  increasingly 
concerned — some  have  canceled  plans  for  expansion,  though  the 
largest  buyer,  the  Gap,  plans  to  expand  orders  in  Cambodia  by 
5%.  We  will  continue  to  encourage  more  responsible  behavior 
among  problem  unions,  and  have  helped  end  the  largest  illegal 
strike.  Nonetheless,  the  immaturity  of  union  leadership  and 
membership  may  slow  progress.  END  SUMMARY. 


Record-Breaking  Numbers  of  Working  Days  Lost  to  Strikes 


1L2  . (SBU)  After  several  months  of  increased  labor  unrest  in 
the  garment  sector  (Ref  A),  May  has  shown  unprecedented 
levels  of  garment  sector  strikes:  nearly  87,000  working  days 

lost  due  to  a total  of  nearly  18,000  workers  participating  in 
13  strikes  during  the  month.  Strike  activity  is  often 
somewhat  more  intense  during  the  busy  May  through  September 
garment  production  season,  but  working  days  lost  to  strikes 
generally  range  from  2,000  to  20,000  per  month  during  this 
period,  and  only  once  before — in  June  2003 — rose  above  50,000. 

Two  Irresponsible  Unions  Share  Much  of  the  Blame 


1[3 . (SBU)  Much  of  the  strike  activity  centers  around  two 
problematic  unions--the  Coalition  of  Cambodian  Apparel 
Workers  Democratic  Union  (CCAWDU)  and  the  Khmer  Youth 
Federation  Trade  Union  (KYFTU).  CCAWDU  was  formerly  one  of 
Cambodia's  most  well-respected  unions,  but  its  behavior  has 
become  increasingly  rash  following  the  ouster  of  former 


President  Chhorn  Sokha  (Ref  B).  More  than  half  of  the 
working  days  lost  in  May  are  due  to  a single  strike  at  the 
Goldfame  Factory  which  involved  5,700  workers  striking  for  8 
days . After  CCAWDU  ignored  back  to  work  orders  from  the 
Arbitration  Council  and  the  Municipal  Court,  the  embassy 
stepped  in  to  persuade  the  union  to  return  to  work  pending 
further  negotiations. 

^4.  (SBU)  The  Khmer  Youth  Federation  Trade  Union  (KYFTU),  led 
by  Yun  Rithy,  is  perhaps  Cambodia's  most  notorious  union, 
with  a reputation  for  extortion,  violence,  and  abandoning  its 
workers  mid-strike.  After  leading  no  strikes  in  January  and 
two  each  in  February,  March,  and  April,  KYFTU  led  strikes  at 
seven  factories  in  May,  involving  a total  of  9,000  workers. 

J.5 . (SBU)  The  Garment  Manufacturers  Association  of  Cambodia 
(GMAC),  pro-opposition  union  leaders,  and  pro-government 
union  leaders  have  all  reported  that  KYFTU  factory  level 
union  leaders  create  labor  disputes  in  order  to  extort  USD 
3000-5000  payments  for  resigning  from  their  jobs.  (Note: 
Cambodian  labor  law  restricts  the  firing  of  factory-level 
union  leaders.  End  Note.)  KYFTU  demands  are  often  numerous 
and  unrealistic,  serving  mainly  as  a pretext  for  a strike  or 
extortion.  In  some  cases,  KYFTU  representatives  disrupted 
completed  or  nearly  completed  negotiations  with  lengthy  lists 
of  additional  demands,  despite  having  no  previous  presence  at 
the  factory  in  question.  Yun  Rithy  told  Poleconoff  on  June 
14  that  the  strikes  are  driven  by  his  workers,  that  there  is 
no  corruption  in  his  union,  and,  most  outlandishly , that  the 
spike  in  strikes  is  due  to  a GMAC-International  Labor 
Organization  (ILO) -union  conspiracy.  Yun  Rithy  reportedly 
has  ties  to  some  CPP  leaders,  is  well-armed,  and  is  protected 
by  a police  general. 


PHNOM  PENH  00001124  002  OF  003 


Union  Competition,  Ineffective  Negotiation  Also  At  Play 


1[6 . (SBU)  Several  other  factors  also  seem  to  be  involved  in 
the  increased  garment  sector  strikes: 

--Increase  in  intra-union  rivalry,  both  across  and  within 
federations:  Pro-opposition  Free  Trade  Union  (FTU)  leader 

Chea  Mony  accused  a pro-management  union  leader  of  hiring 
thugs  to  attack  a Bright  Sky  garment  factory  worker  with 
machetes.  Pro-government  union  federation  leader  Chhuon 
Momthol  reports  that  there  is  rivalry  even  within  his 
pro-management  Cambodian  Confederation  of  Trade  Unions . 

--Disputes  turn  into  strikes  more  quickly:  Unions  and 

employers  accuse  each  other  of  being  unwilling  to  negotiate 
and  pushing  disputes  to  strikes  more  quickly  than  in  the 
past.  Unreasonable  demands  by  KYFTU  designed  to  elicit 
bribes  seem  to  be  muddying  the  waters,  as  there  is  an 
increasing  perception  that  unions  in  general  are  unwilling  to 
negotiate.  Chea  Mony  has  asserted  that  increased  police 
intervention  in  suppressing  strikes  has  led  factory 
management  to  put  less  effort  into  negotiations.  There  is 
also  an  increasing  frustration  among  unions  with  the 
arbitration  process,  and,  for  the  first  time,  two  unions 
recently  defied  Arbitration  Council  orders  to  return  to  work. 

--Wage  demands  supplant  rights  issues  as  main  cause:  The 

American  Center  for  International  Labor  Solidarity  and  GMAC 
report  that  in  the  past  most  strikes  were  due  to  labor  rights 
violations,  e.g.  failure  to  pay  wages  or  overtime,  but  now 
workers  are  striking  to  increase  wages  via  higher  minimum 
wages,  more  generous  piece  rates,  and  more  generous 
attendance  bonus  policies. 

Free  Trade  Union  and  Teachers  Union  Threaten  General  Strike 


1[7 . (SBU)  Meanwhile,  the  FTU  and  the  Cambodian  Independent 
Teachers  Association  (CITA)  have  continued  their  calls  for  a 


general  strike  and  set  a deadline:  FTU  factory  workers  will 

lead  sit  down  strikes  at  their  factories  on  July  3 if  the 
issue  is  not  resolved  before  then.  Garment  workers  from 
other  unions  and  teachers  will  be  invited  to  participate  in 
the  strike  action  as  well.  If  the  dispute  is  still  not 
resolved,  workers  may  take  to  the  streets  on  July  6 or  7 . 
(Note:  The  general  strike  threat  originated  in  a May  1 

speech  in  which  Chea  Mony  and  CITA  leader  Rong  Chhun  called 
for  higher  wages  for  garment  workers  and  civil  servants, 
shorter  working  hours,  and  reduced  gasoline  taxes.)  On  June 
15,  Chea  Mony  told  Poleconoff  that  the  general  strike  is  "a 
test  for  me. . .whether  I can  command  the  workers"  in  advance 
of  the  2007  local  elections. 

Little  Government  Action  So  Far 


J.8 . (SBU)  So  far  the  government  has  taken  few  steps  to 
address  these  concerns,  aside  from  their  on-going  and  not 
terribly  effective  attempts  to  mediate  labor  disputes  and 
worker/employer  education  efforts.  The  Ministry  of  Labor  and 
Vocational  Training  appears  to  still  be  organizing  itself 
following  the  approval  of  a new  Minister  of  Labor  on  May  23 
(ref  C).  Minister  of  Commerce  Cham  Prasidh  was  very  alarmed 
by  the  increasing  numbers  of  strikes  and  warned  Charge  on  May 
30  that  the  combination  of  labor  unrest  and  Vietnam's  entry 
into  the  WTO  could  ruin  Cambodia's  garment  industry  (ref  D) . 
Prime  Minister  Hun  Sen  mentioned  FTU  and  CITA's  demands  for 
higher  wages  for  civil  servants  in  a May  27  speech.  Saying 
that  the  demands  were  made  by  "people  with  no  knowledge  of 
financial  management,"  the  Prime  Minister  said  that  raising 
civil  servant  salaries  would  require  canceling  infrastructure 
development  plans  or  taxing  farmers,  things  he  would  not  do. 

Garment  Manufacturers  Association  Willing  to  Negotiate 


J.9 . (SBU)  GMAC,  which  initially  dismissed  these  threats,  has 
become  increasing  concerned  and  told  Poleconoff  on  June  12 
that  it  is  willing  to  accept  a higher  minimum  wage  and  will 

PHNOM  PENH  00001124  003  OF  003 


approach  the  ILO  for  negotiation  assistance.  Nonetheless, 
GMAC  is  extremely  frustrated  that  the  government  has  so  far 
failed  to  address  the  issue,  but  suspects  that  the  World  Bank 
corruption  scandal  is  distracting  the  relevant  officials. 

GMAC  recently  sent  a highly  inflammatory  letter  to  the  Prime 
Minister  suggesting  that  the  trade  and  labor  linkage  (code 
language  for  the  highly  successful  USG-funded  Better 
Factories  Cambodia  factory  monitoring  project)  should  be 
scrapped  as  labor  was  now  more  of  an  impediment  than  a help 
to  the  industry.  After  stern  words  from  the  ILO  and  the 
embassy,  GMAC  has  agreed  to  issue  a revised  letter  expressing 
their  continued  support  for  Better  Factories  despite  its 
frustration  with  the  increase  in  labor  disputes. 

Some  Garment  Buyers  Scale  Back  Planned  Expansions... 


1[10.  (SBU)  GMAC  and  other  labor  observers  are  very  concerned 
that  late  delivery  and  bad  press  related  to  the  ongoing 
strikes  will  lead  garment  buyers  to  shift  production  out  of 
Cambodia.  Garment  sector  unions — which  had  to  be  prodded  to 
contact  buyers  following  the  December  2005  crackdown  on  union 
and  human  rights  activists — have  now  embraced  the  power  of 
the  internet  and  are  bombarding  buyers  and  socially 
responsible  consumer  groups  with  details  of  even  the  most 
routine  labor  disputes.  Ken  Loo,  Secretary  General  of  GMAC, 
reported  that  Levi  Strauss,  which  bought  8 million  pairs  of 
Cambodian-made  jeans  in  2004  and  10  million  pairs  in  2005  had 
planned  to  buy  13  million  pairs  in  2006  but  instead  has 
downscaled  their  Cambodia  purchases  to  8 million.  Loo  also 
reports  that  Nike  and  Puma  have  shelved  earlier  decisions  to 
expand  purchases  from  Cambodia.  Several  large  garment 
factories  have  considered  moving  to  Vietnam,  and  some  have 
concrete  plans  in  place.  Other  large  factories  may  either 


downsize,  limit  overtime,  or  go  from  two  shifts  to  one  to 
cope  with  reduced  orders.  Loo  speculated. 

But  a Concerned  Gap  Goes  Ahead  with  Order  Increase 


^11.  (SBU)  During  a June  13  meeting  with  Charge  and  Emboffs, 
the  Gap  told  us  that  they  are  quite  concerned  about  the 
expanding  labor  turbulence  in  Cambodia,  but  that  they  still 
plan  to  go  ahead  with  plans  to  increase  their  purchases  from 
Cambodia.  The  Gap--which  single-handedly  accounts  for  about 
12%  of  Cambodia's  GDP--has  added  new  Cambodian  factories  to 
their  base  of  suppliers  and  anticipates  at  least  a 5% 
increase  in  orders  from  Cambodia.  However,  they  also  said 
that  they  had  been  on  the  phone  frequently  to  their 
Cambodia-based  vendor  compliance  officer  learning  the  details 
of  various  disputes  and  that  they  had  been  deluged  with  "mail 
from  all  of  Sweden"  regarding  at  a dispute  at  a factory  that 
makes  Gap  products.  Senior  Director  for  Global  Compliance 
Deanna  Robinson  warned  that  once  investors  leave,  it  is  very 
difficult  to  get  them  back. 

COMMENT 


^12.  (SBU)  This  huge  increase  in  labor  unrest — timed  to 
coincide  with  the  peak  garment  production  season — has  already 
drawn  the  attention  of  garment  buyers  and  led  some  of  them  to 
scale  back  planned  expansion  of  garment  production  in 
Cambodia.  While  KYFTU  seems  to  be  motivated  by  short-term 
goals  of  extorting  money  from  garment  factory  owners,  other 
unions  seem  to  be  just  sophisticated  enough  to  know  when  to 
time  strikes  and  how  to  use  the  internet  for  maximum  effect, 
without  being  savvy  enough  to  realize  that  their  actions  are 
already  having  damaging  consequences.  The  fact  that  two 
irresponsible  unions--KYFTU  and  CCAWDU--are  responsible  for 
the  bulk  of  the  working  days  lost  is  good  news,  showing  that 
most  Cambodian  unions  are  acting  more  responsibly.  However, 
garment  buyers  may  not  look  closely  enough  at  the  strike 
action  to  realize  this.  The  increased  labor  unrest  has 
already  slowed  this  year's  garment  sector  growth,  and  could 
even  lead  to  net  decreases  in  jobs  and  exports  if  it 
continues  unchecked. 

MUSSOMELI